Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

General Discussion on the Permanent Portfolio Strategy

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mgtow
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Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by mgtow » Tue Feb 25, 2014 11:55 am

http://www.preserveyourwealth.ca/perman ... tfolio.php

In case the link doesn't work, he uses the following asset mix:
20% gold ETF
25% real return bonds ETF
25% short term bonds ETF
20% international stock ETF  - I assume UN-hedged.
10% Corporate Preferred Share Index ETF

I recall reading somewhere that it was best to buy Long Term bonds (30 year) directly rather than real return bonds.  My worry with Long Term bonds (and real return bonds in the portfolio above) was that when the 2008 crisis occurred the Canadian real return bond etfs only returned somewhere around 0.5% whereas the US TLT returned over +20%.  On the otherhand the same Canadian Real Return bond ETF I looked up did return 14.5%, 11.1% and 18.35% during the next 3 years respectively.    Perhaps there was some lag time between the US and Canadian economies?

Would like to hear your thoughts (even non-Canadians).
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by Gosso » Tue Feb 25, 2014 1:04 pm

I'm not sure about the real return bonds, but as long as they are long-term then it's probably okay, unless you're worried about the Canadian government manipulating the CPI.  Otherwise I'm fine with the rest of that Canadian PP.

In 2008 the Canadian dollar tanked by about 20%.  This resulted in the price of gold increasing by an additional 20% in CAD above the USD return.  So in CAD the return was 25%, while the USD return was 5% for gold.  The reason for this is that everyone was piling into the USD, which drove their long term rates down for US treasuries.  Looking at TLT's return from 2008 we get 34%, but then in 2009 it corrected -21%.

http://us.ishares.com/product_info/fund ... ce/TLT.htm

So the Canadian PP relies on the currency fluctuation of the CAD to help during a crisis (when the CAD falls, both gold and unhedged foreign stocks will directly benefit), while the US PP relies on falling interest rates of the long bonds.  At least for a deflationary crisis as seen in 2008.

Added: As for buying real return bonds directly, I have never seen them on the Scotia bond desk, I think you might have to call.  Generally I have found it to be too costly to buy bonds directly in Canada.  It is easier to just go with an ETF.  ZRR looks okay, and actually has a longer bond duration than ZFL: http://www.etfs.bmo.com/bmo-etfs/glance?fundId=80005

Although ZRR has performed worse than ZFL.  I think the reason for this is due to the premium paid for the unexpected inflation protection.  But this is just a hunch.  I'd just go with ZFL, unless you really like real return bonds.

Added 2: Another downside to real return bonds is that during a deflation they can return less than their face value.  As far as I know this doesn't occur for US TIPS.  http://www.bylo.org/rrbs.html
Last edited by Gosso on Tue Feb 25, 2014 9:16 pm, edited 1 time in total.
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by mgtow » Wed Feb 26, 2014 11:25 am

Gosso, Thank you so much for your response.  Very informative!  This puts my mind more at ease. 

Now my only remaining question is entry point.  I have a really good knack at buying stuff that then falls in value soon after  (Nortel, XBB, Barrick,  Gold when it was $1850)

I am currently 90% cash, 10% gold.  Current line of thinking is to 'dollar cost average' in 6 chunks over the next 6 quarters, then contribute monthly to cash until I have a minimum of $3000 to contribute to any lagging asset.  Currently paying brokerage fee of $9.99.

Any thoughts?
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by Cortopassi » Wed Feb 26, 2014 11:33 am

It's been ~4-5 years since I've been convinced I'd have a better entry point into the stock market and had to get on the gold train before it left the station.

So look what that strategy has done for me.  Way high in gold and cash and little of anything else, and have missed out on a huge market rally.

I just placed my 401k into as close a PP as I could given the funds I had access to, so "all in" on that account.  No DCA.

There is nothing to say in 6 months SP500 will be 1200 or 2200.  While it seems prudent to DCA in, you don't know the future, which is exactly what the book says.  I think there is a very strong case to just do it all at once.  We might think we know what will happen, but my personal experience is I am 90+% wrong on calls!

Mike
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by bluedog » Wed Feb 26, 2014 12:17 pm

mgtow,

Which ETFs/funds were you considering for your Canadian portfolio?

a fellow Canuck  :)
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by Gosso » Wed Feb 26, 2014 4:12 pm

mgtow wrote: Gosso, Thank you so much for your response.  Very informative!  This puts my mind more at ease. 

Now my only remaining question is entry point.  I have a really good knack at buying stuff that then falls in value soon after  (Nortel, XBB, Barrick,  Gold when it was $1850)

I am currently 90% cash, 10% gold.  Current line of thinking is to 'dollar cost average' in 6 chunks over the next 6 quarters, then contribute monthly to cash until I have a minimum of $3000 to contribute to any lagging asset.  Currently paying brokerage fee of $9.99.

Any thoughts?
Well the Canadian PP is already up 6% YTD, but this is mostly a correction from lost ground in 2013.  However, I wouldn't be surprised to see a small correction or plateau in the near future.

Dollar cost averaging is an option, and if it helps make the transition easier then go for it.
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by mgtow » Thu Feb 27, 2014 11:36 am

bluedog wrote: mgtow,

Which ETFs/funds were you considering for your Canadian portfolio?

a fellow Canuck  :)
For real return bonds I will probably go with BMO's  http://www.etfs.bmo.com/bmo-etfs/perfor ... 80005    (cheaper than iShare's)
For gold I  have always used the Royal Canadian Mint's ETR  "MNT"  http://www.reserves.mint.ca/Gold/    I just trust it more than a gold etf.
The other categories I haven't thought too hard about yet  (probably iShares or Vanguard... unhedged )

Still have another 5% of convincing I have to do of myself before I fully commit to the permanent portfolio (Filipiuk version).
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by mgtow » Thu Feb 27, 2014 11:49 am

Cortopassi wrote: It's been ~4-5 years since I've been convinced I'd have a better entry point into the stock market and had to get on the gold train before it left the station.

So look what that strategy has done for me.  Way high in gold and cash and little of anything else, and have missed out on a huge market rally.

I just placed my 401k into as close a PP as I could given the funds I had access to, so "all in" on that account.  No DCA.

There is nothing to say in 6 months SP500 will be 1200 or 2200.  While it seems prudent to DCA in, you don't know the future, which is exactly what the book says.  I think there is a very strong case to just do it all at once.  We might think we know what will happen, but my personal experience is I am 90+% wrong on calls!

Mike
I'm pretty convinced we're (US+Canada) is heading into a recession so I feel much more comfortable starting in Q3 than right now before the bad news becomes mainstream. The unemployment and inflation stats released by the government are a total joke. 
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by bluedog » Thu Feb 27, 2014 12:37 pm

mgtow,

Thx for the info/link to the Canadian Mint alternative to unhedged gold ETFs for Canadians.

I am unable to hold physical in our RRSP/RIF accounts and do not have the after tax dollars to buy the physical.
On first glance, this seems like a safer option to the paper ETFs such as IGT and CGL.C.

Actually, was just on the phone with them.

Trying to figure out possible downsides before I go forward.

So much to consider.
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by Shadow » Fri Feb 28, 2014 11:42 am

Costs are important;
MNT = 35 basis points
IGT = 25 basis points (my choice)
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Re: Filipiuk's Canadian Permanent Portfolio and my fear of bonds.

Post by mgtow » Sun Mar 02, 2014 2:17 pm

Shadow wrote: Costs are important;
MNT = 35 basis points
IGT = 25 basis points (my choice)
At one point I ran across this article about IGT (IAU in the US), and I simply don't trust IGT.
http://www.zerohedge.com/article/has-is ... -and-goldm

Anything connected with JP Morgan and Goldman Sacks in my opinion is criminal.

I'd rather pay the extra 0.10% and sleep at night.
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